Pioneer Chlor Alkali v. National Union Fire Ins. Co., CV-S-93-276-RLH.

• Decision Date: 24 June 1994
• Docket Number: No. CV-S-93-276-RLH.,CV-S-93-276-RLH.
• Citation: 863 F. Supp. 1226
• Parties: PIONEER CHLOR ALKALI COMPANY, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, Defendant.
• Court: U.S. District Court — District of Nevada

863 F. Supp. 1226

PIONEER CHLOR ALKALI COMPANY, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, Defendant.

No. CV-S-93-276-RLH.

United States District Court, D. Nevada.

June 24, 1994.

J. Randall Jones and William Kemp of Harrison, Kemp & Jones, and Kevin R. Stolworthy of Jones, Jones, Close & Brown, Las Vegas, NV, for plaintiff.

Philip Silverberg of Mound, Cotton & Wollan, New York City, and Thomas D. Beatty, Las Vegas, NV, for defendant.

ORDER

HUNT, United States Magistrate Judge.

(Motion for Summary Judgment — # 67; Countermotion for Summary Judgment — # 114)

This matter comes before the court on motions for summary judgment filed by both parties:

1. Defendant National Union Fire Insurance Company of Pittsburgh, PA's Motion for Summary Judgment (# 67, filed February 4, 1994);

2. Plaintiff's Countermotion for Partial Summary Judgment on Issue of Liability (# 114, filed March 25, 1994).¹

Defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") filed one pleading (# 122) which was both a reply in support of its motion and an opposition to Pioneer's countermotion. Plaintiff Pioneer Chlor Alkali Company, Inc., ("Pioneer") then filed a reply (# 130) in support of its Countermotion.

INTRODUCTION

This action arises out of the May 6, 1991 chlorine gas leak which occurred at Pioneer's plant in Henderson, Nevada. Pioneer has sued National Union for breach of contract under an "all risk" insurance policy (the "Policy") which was in effect at the time of the gas leak. Pioneer seeks coverage for damage to its equipment, loss of the chlorine gas, and business interruption losses.

Pioneer manufacturers and sells liquid chlorine as well as some other chemicals. At Pioneer's plant, chlorine gas travels through 780 small steel tubes. These tubes pass through a secondary liquefier. Brine is forced into the liquefier by hitting an impingement plate which disperses the brine around the 780 tubes. The brine is at temperature of - 10°F and cools the chlorine gas into its liquid state. The liquid chlorine then continues downline and empties into storage tanks.

The following are the relevant portions of the insurance Policy for purposes of these summary judgment motions.

This Policy covers property insured hereunder against all risks of direct physical loss or damage occurring during the period of this Policy from an external cause, except as hereinafter excluded.

(Ex. 1, Countermot. Summ.J., at 2.)

In the Perils Excluded section, the Policy states,

This Policy does not insure against loss, damage or expense caused by or resulting from:

(Id. at 6.)

Among the paragraphs of exclusions is the following:

Gradual deterioration, depletion, inherent vice, latent defect, termites, moth, vermin, ordinary wear and tear, dampness or dryness of atmosphere, extremes or changes of temperature, smog, shrinkage, evaporation, loss of weight, rust, corrosion, erosion, wet or dry rot, change in flavor or color or texture or finish; unless such loss is caused directly by physical damage not otherwise excluded in this Policy to the property covered.

(Id. at 6.) (emphasis added).

National Union has moved for summary judgment arguing that Pioneer's loss was not covered because it was caused by corrosion.

DISCUSSION

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment has the initial burden of showing the absence of a genuine issue of material fact. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). Once the movant's burden is met by presenting evidence which, if uncontroverted, would entitle the movant to a directed verdict at trial, the burden then shifts to the respondent to set forth specific facts demonstrating that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). All facts and inferences drawn must be viewed in the light most favorable to the responding party when determining whether a genuine issue of material fact exists for summary judgment purposes. Poller v. CBS, Inc., 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962). After drawing inferences favorable to the respondent, summary judgment will be granted only if all reasonable inferences defeat the respondent's claims. Admiralty Fund v. Tabor, 677 F.2d 1297, 1298 (9th Cir.1982).

As both parties have moved for summary judgment, who bears which burdens discussed above depends on which summary judgment motion is being addressed.

I. NATIONAL UNION'S MOTION FOR SUMMARY JUDGMENT (# 67)

For purposes of bringing their Motion for Summary Judgment, National Union has assumed Pioneer's version of the chain of events leading to the gas leak. The facts according to Pioneer are as follows.

A. Facts

At some point (perhaps twenty five years ago when the plant was built, perhaps less), a rag became lodged in the secondary liquefier. The rag, located near the impingement plate, diverted the flow of the brine. Due to such diversion, brine concentrated on a few of the steel tubes. This concentration of brine resulted in four small holes in three of the 780 steel tubes. Brine then entered the three tubes through these holes. The brine and the chlorine mixed to form a highly corrosive acidic solution.

This acidic solution caused damage to some equipment downline from the liquefier. Additionally, within a matter of days of the tubes being perforated, this brine-chlorine solution ate through an elbow in the piping downline from the liquefier. Through this breached elbow, forty-two tons of chlorine gas escaped into the atmosphere.

According to Pioneer, a diagram of the facts would look like the following: presence of rag diversion of brine flow corrosion and penetration of chlorine tubes formation of hypochlorous/hydrochloric acid in chlorine tubes damage to downline equipment and elbow joint release of chlorine gas. (Pl.'s Reply at 14.)

Assuming these facts, National Union argues that it is entitled to judgment because the loss was caused by corrosion, a peril excluded from coverage.

The Court will first deal with a secondary argument by National Union concerning collateral estoppel.

B. Collateral Estoppel

National Union argues that Pioneer should be collaterally estopped from arguing that this loss was not caused by corrosion. The previous litigation which National Union points to as grounds for estoppel is Pioneer Chlor Alkali Co. Inc. v. Royal Indem. Co., No. 91-041446 (Dist.Ct., Harris County, Tex. 1993), rev'd, 879 S.W.2d 920 (Tex.Ct.App. 1994) (appellate court rendering judgment in Pioneer's favor). This Texas state case also arose out of the chlorine leak which is the subject of this action.

When a federal court sits in diversity jurisdiction, collateral estoppel is controlled by the forum state's substantive law. Priest v. American Smelting & Refining Co., 409 F.2d 1229, 1231 (9th Cir.1969); see also Northwest Acceptance Corp. v. Lynnwood Equipment, Inc., 841 F.2d 918, 926 (9th Cir. 1988) (applying collateral estoppel law of forum state) (citations omitted). Under Nevada law, collateral estoppel "prohibits parties or their privies from re-litigating issues actually litigated and necessarily determined" in previous litigation. Nevada v. Kallio, 92 Nev. 665, 557 P.2d 705, 707 (1976) (citing Clark v. Clark, 80 Nev. 52, 389 P.2d 69 (1964)).

The present issue, whether this loss was caused by corrosion, was not actually litigated nor necessarily decided in the Texas proceedings. The defendant Royal Indemnity Co. had issued a boiler & machinery policy to Pioneer covering "accidents." The Royal policy expressly stated that certain items do not constitute an accident, among these, corrosion. The issue before the Texas court was whether the loss occurred from an accident. The cause of the accident, whether corrosion, the rag, or something else, was immaterial. Since the present issue was not decided at all, let alone necessarily decided by the Texas courts, collateral estoppel is not applicable.²

C. The Cause of Pioneer's Loss

A majority of jurisdictions use the efficient proximate cause doctrine in adjudicating all risk insurance policies where a covered and a noncovered peril contribute to a loss. Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 725 P.2d 957, 962 (1986) (en banc) (citations omitted); see generally 5 John A. Appleman, Insurance Law and Practice § 3083 (1970); 18 George J. Couch, Cyclopedia of Insurance Law §§ 74:696-717 (2d ed. rev. 1983).³ This doctrine developed in California. Schroeder v. State Farm Fire and Casualty Co., 770 F.Supp. 558, 560 (D.Nev.1991). If a covered peril is found to be the efficient proximate cause, then the loss is covered; if a noncovered peril is found to be the efficient proximate cause, then the loss is not covered. Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 257 Cal.Rptr. 292, 295, 770 P.2d 704, 707 (1989) (in bank). The proximate cause is to be distinguished from a remote cause. See id.

The efficient proximate cause is "the one that sets others in motion." Garvey, 257 Cal.Rptr. 292, 295, 770 P.2d 704, 707; Graham v. Public Employees Mut. Ins. Co., 98 Wash.2d 533, 656 P.2d 1077, 1081 (1983) (en banc) (efficient proximate cause "sets into motion a chain of events producing the loss"). The efficient proximate cause is not necessarily the last act in a chain of events. Garvey, 257 Cal.Rptr. at 296, 770 P.2d at 708. And while the efficient proximate cause is said to "set into motion a chain of events," it is not necessarily the "triggering cause" (assuming one could be...